Oil fell to a three-week low below $114 a barrel on Thursday, hit by weak euro zone economic data dampening the prospect of an early recovery and concern the U.S. Federal Reserve might end its stimulus programme sooner than thought.
The drop extended Brent crude's largest one-day drop in 2013 on Wednesday, alongside declines in other commodities and equities. Rumours that a hedge fund was liquidating positions also had helped pressure prices, although there was no evidence of liquidation by any specific fund.
Brent crude fell as low as $113.69, the lowest intra-day price since Jan. 29, and as of 1305 GMT was down $1.47 at $114.13 a barrel. U.S. crude slipped by $1.43 to $93.79.
"Yesterday was a major sell-off, not just in oil but in other commodities," said Tony Machacek, a broker at Jefferies Bache in London. "We've come off a long way, and just looking at the charts, Brent could come down to the $113 area."
Since mid-December, hedge funds and other large speculators have nearly doubled their bets that oil prices will rise, amassing positions in Brent and U.S. crude futures and options equivalent to around 440 million barrels of oil, regulatory and exchange data show.
The price of Brent rose by $10 a barrel in the first six weeks of 2013 to hit a nine-month high above $119 on Feb. 8 as signs of strong demand from China and lower Saudi supply raised expectations of a tighter market.
"Brent was overbought amid overwhelming investor interest, an increased geopolitical premium and bullish macro sentiment, while short-term fundamentals simply do not justify sustained gains past $120," said Andrey Kryuchenkov, an analyst at VTB Capital in London.
A key level of technical support on price graphs for Brent on Thursday was around $113.10, the 50-day moving average and the lower Bollinger band, said Olivier Jakob, an analyst at Petromatrix.
Another level to watch was $113.07, the low from Jan. 29. A move below this zone of support could lead to more sell orders.
Equities and the euro also fell sharply on Thursday as surveys showed the downturn in the euro-zone's businesses worsened unexpectedly this month.
Economists had forecast the euro zone purchasing managers' indexes (PMIs) would add to tentative signs a recovery was under way, but instead they pointed to a first-quarter contraction of up to 0.3 percent.
On Wednesday, minutes of the Federal Reserve's last policy meeting cast doubt over how much longer the U.S. central bank would stick to its stimulus plan, leading to declines in the euro, equities and commodities.
A day earlier, oil industry sources said top world oil exporter Saudi Arabia, which cut supplies in the last two months of 2012, could raise its output in the second quarter to satisfy higher demand.
Also weighing on oil, a report from the American Petroleum Institute on Wednesday said crude stocks rose by a more-than-forecast 3 million barrels. The U.S. government's weekly supply report is due later on Thursday.
Investors were also weighing the prospect of reduced tension between Iran and the West over Tehran's nuclear work. A Western diplomat said on Wednesday major powers are ready to make "a substantial and serious offer" to Iran during talks next week. (Additional reporting by Florence Tan in Singapore; Editing by William Hardy)